What does Maria Sharapova smell like when she's not sweating it up on the hard court? Who knows? But Parlux Fragrances
One of the most fundamental criteria that we look for in potential investments is a company with accelerating sales and earnings. Parlux makes the cut. Through two quarters, its revenues and net income are up 30% and 115%, respectively, compared with the same period a year ago.
It's also nice to see that the company is not fueling growth through debt. Parlux has a clean balance sheet with $4.4 million in cash and equivalents, and no short- or long-term debt. To fuel future growth, Parlux is banking on key licensing agreements. The newly released Paris Hilton fragrance has received the greatest amount of media attention, but the company is also expecting strong sales from licenses formed with tennis star Maria Sharapova and Guess?
Given its clean balance sheet, strong sales, and a nice lineup for future growth, it's worth taking a closer look at its all important cash flow to determine if Parlux remains a deal. With an enterprise value of $181 million, the company is valued at 19 times its trailing-12-month structural free cash flow. Using the sales growth for this year and its pipeline of big name scents as a guide, the stock appears to be reasonably valued at this level.
While Parlux no longer smells like a bargain, it remains a worthy addition to an investor's watch list. And if the market starts to stink sometime over the next few quarters, take a glance back at Parlux -- you may have sniffed out a buying opportunity.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
